Banks’ improvement looking like old times

The Federal Deposit Insurance Corporation (FDIC) today noted how commercial banks and savings institutions showed a marked improvement in the second quarter of the year — a $5.9 billion improvement in aggregate net income over the same time last year.

In fact, the $34.5 billion in profits was not only the 12th consecutive quarter where earnings showed a year-to-year increase, but it’s also the first time since 2007 that banks have consistently reported levels so high.

Can you hear the cheering?

Maybe not. That’s because the FDIC isn’t quite championing it all as an end to the gloomy economy, though the balance sheets are indicating otherwise.

“The banking industry continued to make gradual but steady progress toward recovery in the second quarter,” FDIC acting chairman Martin Gruenberg said in a statement releasing the numbers. “Levels of troubled assets and troubled institutions remain high.”
Loan balances posted a fourth quarterly increase over the last five, and loans to commercial and industrial borrowers was up by 3.6 percent to $48.9 billion. And residential mortgages — remember them? — were also up, but only 0.9 percent.

“This quarter’s return to loan growth is an encouraging development,” Gruenberg said, cautioning that he’d rather wait to see if it sustains.

Too, the number of troubled institutions dropped for a fifth consecutive quarter, to 732 from 772 — the smallest number of problem banks since late 2009. To date, 40 banks have failed this year. This time last year it was 68.

So why not be a little encouraged?

Apparently because banks have trimmed workforces and toxic assets in order to show off a trimmer bottom line, so what we’re seeing might not actually be quite as rosy as we’d like to believe.

“Most institutions are profitable and are improving their profitability,” Gruenberg said.

So, at least it’s still a rose. It’s just the color that’s missing for now.

Emilie Rusch covers retail and commercial real estate for The Post. A Wisconsin native and Mizzou graduate, she moved to Colorado in 2012. Before that, she worked at a small daily newspaper in South Dakota. It's the one with Mount Rushmore.